Palm drops on demand concerns from China, weak soyoil

Malaysian palm oil futures fell on Wednesday on concerns that demand from key buyer China could decline after the nation devalued its currency, and as prices of rival soyoil dropped. The benchmark palm oil contract for October on the Bursa Malaysia Derivatives Exchange lost 2.21 percent to 1,991 ringgit ($493.13) a tonne by the close. Traded volume stood at 27,206 lots of 25 tonnes each, above the roughly 13,500 lots usually traded by midday.

The ringgit, which has been the worst performing emerging Asian currency so far in 2015, restricted the downside as the benchmark palm is priced in the local currency, traders said. The local currency weakened past the psychologically important 4 per dollar level as regional currencies lost ground after China allowed the yuan to drop for the second straight day.

“The devaluation of yuan will make imports expensive for Chinese buyers and may affect demand,” said Sandeep Bajoria, chief executive officer of Mumbai-based Sunvin Group. US soyoil futures were down 1.26 percent, while the most active soybean oil contract on the Dalian Commodity Exchange gained 1.22 percent. Oil prices steadied on Wednesday after an upbeat report from the IEA balanced the bearish impact of a further weakening of the yuan and disappointing Chinese industrial output data.

Data released on Monday showed a build-up in Malaysia’s July palm oil stocks to 2.27 million tonnes due to higher production and a slowdown in demand after the Muslim holy month of Ramadan. “Buyers are waiting for prices to stabilise. They are postponing purchases,” said a Mumbai-based trader. Last week the benchmark palm oil contract marked its longest weekly losing streak in seven years, after sliding to its lowest since September on Thursday. Wang Tao, a Reuters market analyst for commodities technicals, said palm oil may break a support at 2,017 ringgit per tonne and fall into a range of 1,963-1,997 ringgit.